Telecom companies will have to bear the big lash of 2G spectrum pricing. Operators are already crying foul over the cancellation of 122 licenses and now will have to search deeper pockets to meet TRAI's proposal for 2G spectrum reserve auction price.
With 2G spectrum pricing expected to go over the roof, telecom companies have a tall task at hand. Operators, who were crying foul over the cancellation of 122 licenses will now have to dig deeper to fund TRAI-recommeded inflated 2G spectrum reserve auction price.
However, the big question is if it will pinch consumers. Most unlikely as per analysis of CNBC-TV18's Siddarth Zarabi.
If one looks at the growth curve and current tariffs telecom regulator TRAI continues to maintain a policy of forbearance wherein it allows the market to operate the way the spectrum is being auctioned, i.e. in phases spread over three years. It is believed that TRAI has assumed a 2-3 paise increase only as far as the current tariff rates are concerned on a per minute basis. This seems to be the base number with which the TRAI has worked out these recommendations.
Therefore, it does not foresee a huge and massive increase in prices. However, the other element of this would be market prices have always been determined not just by the availability of infrastructure and resources like spectrum; they have also been always linked and influenced by the availability of competition. For instance, in 2008 after despite the fact that the new 2G telecom companies did not do a massive rollout and almost two-thirds of them never even took off in terms of services, there was still a very sharp reduction in tariffs because of the competition.
The mathematics now
If you have one 5 MHz block being auctioned immediately at 5 MHZ of initial start up spectrum you are looking at a situation where there will be one new player per circle. It could be different companies but one new player per circle, how does that compare with a post 2008 situation where there were suddenly had 5-6 additional players coming into each circle. This was adding to the market dynamics for companies like Bharti, Vodafone or Idea who are the pre-2008 operators so to say.
So effectively competition will be much lesser, more controlled competition and therefore the new entrant if the prices sort of work out well for him could well continue to be aggressive price warriors, who would these new entrants be.
Those new entrants could be the existing 2G operators those whose licenses have been cancelled or it could be a new player. Either ways you would see that newly granted player, combat in the market to try and get subscribers. Is they play out that way, then you would have a situation where tariffs may not perhaps go up but yes, competition for the entire sector for the established players will now be more controlled and not the kind of run away competition that we had seen post 2008.